Saputo Inc.

Good morning and welcome to Saputo Inc's third quarter 2025 financial results conference call and webcast. All participants are in a listen-only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question at this time, you'll need to press star followed by one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Nick Estrella, Senior Director of Investor Relations. Thank you. Please go ahead.

Thank you, Julianne. Good morning, and welcome to our third quarter fiscal 2025 earnings call. Our speakers today will be Carl Pulitzer, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded, and the webcast will be posted on our website, along with the third quarter investor presentation. Please also note that some of the statements provided during this call are forward-looking. Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward-looking information in our annual report, press releases, and filings. Please treat any forward-looking information with caution, as our actual results could differ materially. We do not accept any obligation to update this information, except as required under securities legislation. I'll now hand it over to Carl.

Thank you, Nick, and good morning, everyone. The third quarter was a positive quarter. one in which we made good progress overall with solid execution and cost containment efforts and accelerating contributions from our large capital projects. We also delivered a strong financial performance despite a high level of market volatility throughout the quarter. We generated adjusted EBITDA of $417 million, 13% higher year over year, and marking our best quarterly performance since Q3 of fiscal 2023. Revenues were up in all sectors, reflecting higher sales volumes and domestic selling prices. We also benefited from an improving global dairy market with increased international cheese and dairy ingredient prices. This consistent operating and financial performance continues to support our cash generation with operating cash flow at $735 million so far this fiscal year. During the quarter, we took advantage of our strong cash generation to return additional capital to shareholders through share repurchases. We are confident in our ability to continue generating steady cash flows, and we intend to focus our capital allocation strategy on share repurchases in the near term. As a result, we increased the total number of shares that can be repurchased under our NCIB from 2% to 5% of shares outstanding. Given our current share price, we believe buying back shares offers the best return on capital. From a capital projects contribution perspective, the initiatives and systems and infrastructure we have put in place to support a diversified portfolio and reduce our costs are generating results with $30 million of savings and benefits in our U.S. sector this quarter. Significant long-term margin opportunity remains ahead as we execute on our operations and productivity plans. Food inflation is now easing, but prices nonetheless remain high. Consumers are still cost-sensitive and focused on value. In this environment, we continue to adapt our commercial and growth strategies. Consistent with last quarter, in Q3, we focused on the breadth of our portfolio and our premium and value offerings across retail and food service. These remain the areas of greatest competitive differentiation and market opportunity in the current context. Before I turn it over to Max, I would like to speak to the decision to withdraw our previously disclosed long-term adjusted EBITDA aspiration. Market conditions have not stabilized as we had anticipated, making this a prudent decision as we operate in what remains a dynamic consumer environment. We are committed to delivering the benefits from our investments and will continue to take action to optimize and streamline operations across each of our geographic regions, support the growth of our key customers, and invest in our leading brands consistent with our commercial strategy. At the same time, we continue to evaluate all aspects of the business, including our strategic priorities, our cost and resource structure. Saputo is a resilient business with a strong foundation comprised of a portfolio of exceptional brands and world-class assets that can be further improved and built upon. And I am confident we are on the right track. I will now turn the call over to Max for the financial review before providing my concluding remarks.

Thank you, Carl, and good morning, everyone. Here are the financial highlights of the third quarter. Consolidated revenues were $5 billion last a 17% increase when compared to last year. Revenue increased in all of our sector, reflecting higher sales volume and higher domestic selling prices. Higher international cheese, dairy, and dairy ingredient market prices in our export market also had positive impact. Adjusted EBITDA amounted to $417 million, a 13% increase when compared to the $370 million in the same quarter last year. The year-over-year increase of $47 million in adjusted EBITDA was driven by operational improvement, benefit from capital investment, cost saving, and higher volume and mix. Third quarter results include a non-cash goodwill and intangible asset impairment charge of $684 million relative to the UK division in our Europe sector. In performing our annual goodwill impairment testing, our UK division cash generating unit estimates of future discounted cash flows were reduced primarily due to ongoing challenging market conditions in the United Kingdom, including persisting inflation and elevated interest rates. While margins have been improving during fiscal 25, the improvements have not been as rapid as initially expected, leading to a longer projected recovery period. As a result, the estimated recoverable value of the UK cash generating unit was determined to be lower than its carrying value, and a known cash goodwill and intangible asset impairment charge was recorded. These factors led to a reported net loss of $518 million in the third quarter. On an adjusted basis, our net earnings were $167 million, or $0.39 per share. And I'll take you to key highlights by sector. In Canada, revenue for the third quarter totaled $1.4 billion, an increase of 7% when compared to last year. Revenue increased due to higher sales volume, a favorable product mix, and higher selling prices in connection with the higher cost of milk as raw material. Adjusted EBITDA for the third quarter totaled $175 million, up approximately 17% versus the same quarter last fiscal year. Our improved performance reflected the benefit derived from operational deficiencies, including continuous improvement measures, supply chain optimization and automation initiatives, a favorable product mix and higher sales volume, and the positive impact of lower general and administrative costs. In our U.S. sector, revenue totaled $2.3 billion and were 12% higher versus last year. Revenue increased due to the combined effect of the higher average cheese block butter and dairy ingredient market prices and higher sales volume. Adjusted EBITDA was $160 million, which was 20% higher when compared to last year. Our results include approximately $30 million in benefits derived from capital investment in our cheese asset, operational improvement including increased capacity utilization, higher productivity, which resulted in increased cheese volume, supply chain initiative, cost reduction, and lower SG&E. Our U.S. results also include a $20 million unfavorable impact from U.S. market factors, mainly due to the negative milk cheese spread. The negative milk cheese spread was partially mitigated through the favorable impact of our pricing protocol for our dairy foods products. On a year-to-date basis, the USA sector is performing well with adjusted EBITDA 22% up versus last year, despite the negative impact from a persistent negative milk cheese spread, a testament to the progress we're making around operational and commercial execution. In the international sector, revenues for the third quarter were $1 billion up 60% versus last year. Revenue includes a non-cash positive impact of $51 million due to the application of hyperinflation accounting to the revenues of the Argentinian division as compared to a negative $303 million for the same quarter last fiscal. Adjusted EBITDA total, $51 million down 34 on a year-over-year basis. The decline in adjusted EBITDA was mostly driven by our Argentina division, with its result impacted by the relation of inflation and FX devaluation, leading to higher production costs, including higher milk costs. Reduced milk availability in Argentina further contributed to higher milk costs. A less favorable effect of the currency fluctuation on export sales denominated in US dollar and a non-cash negative impact of $28 million due to the application of hyperinflation accounting to the Argentinian results. The Australia performance met our expectations following a better alignment between mill cost and international commodity selling prices. In the Europe sector, Revenues were $311 million, while adjusted EBITDA amounted to $31 million. The recovery of adjusted EBITDA margin reflected the positive impact of higher sales volume in the retail market segment. The favorable comparison from last year was due to the sell-off excess inventory produced at higher milk prices to bulk cheese sales volume, which had a negative impact in our adjusted EBITDA margin last year. Net cash generated from operating activities in the third quarter amounted to $382 million, while capex for the quarter totaled $82 million in line with our plans. On capital allocation, we repurchased approximately 1.2 million shares during the quarter for a total purchase price of approximately $32 million. Subsequent to the quarter end, we repurchased an additional 565,000 shares for approximately $14 million. Also in Q3, we repaid at maturity the full outstanding principal amount of $400 million for the series six senior unsecured notes. As of December 31st, 2024, our net debt to adjusted EBITDA ratio stood at 2.1 times, reflecting our healthy financial position. Looking ahead, we are in a very good position to capture opportunities and continue to operate in a dynamic environment. This concludes my financial review, and with that, I will turn the call back to Carl.

Thank you, Max. In Canada, we had another standout quarter with adjusted EBITDA up nearly 17% first last year. We benefited from seasonally higher volume, cost reductions, and efficiency improvement programs. Retail market segment sales drove year-over-year growth in natural cheese sales volumes. This was led by our Armstrong brand, which continues to outpace the market in shreds, slices, and snacking cheese categories. This growth reflects our focus on our core categories investing in brand marketing, accelerating innovation, aligning with consumer trends, and expanding distribution. Food service sales remain stable. Our customers remain optimistic about the year ahead, driven by value meal options, menu innovation, and guest experience enhancement. Innovation is and will remain a priority for our team as we continue to build a healthy pipeline based on consumer and customer insights. Protein is in focus right now, not just in Canada, but globally. Consumers are looking for ways to increase or optimize their daily protein intake. Based on that trend, we've launched earlier this year 18-gram protein milk beverages under Dairyland and Nielsen brands. These products are performing very well in the marketplace. Innovation for us also means ideation sessions with our food service customers. The team has been busy showcasing our products to our customers and cooking with chefs, bringing new menu ideas that will make their way to some of our customers' menus. In the U.S., results improved sequentially and year-over-year despite depressed milk cheese spreads. This is a testament to the excellent job our teams are doing navigating a complex environment while delivering benefits from our capital investments, strong productivity, and cost savings. we continue to see compressed spreads compared to last year. The average quarterly cheese milk spread fell to a record low as dry away average prices increased 21% sequentially and 66% year over year. Although our U.S. business is challenged by the commodity cycle, our focus, now and in the future, is building on a best-in-class operation so that we are well prepared when the cycle turns. At the same time, we continue to align every aspect of our operations from procurement to production and distribution to meet customer and consumer demands. Our network optimization initiatives are expected to drive better capacity utilization and allow us to improve our capabilities by leveraging our plants. Recently, The USDA announced that the new milk pricing formula was approved by all federal milk marketing orders in which we operate in. The changes, which will come into effect June 1, 2025, will be positive for dairy processors and better reflect the operating cost environment within the dairy industry. Had the new changes to the milk pricing formula been in effect for fiscal 2024, In light notably of our fiscal 2024 milk procurement and product mix, the benefit on adjusted EBITDA would have been approximately 60 to 70 million U.S. dollars. In the international sector, global demand for dairy remains robust while pricing continues to recover. In Argentina, the relationship between inflation and the pesos deteriorated sequentially, which led to higher production costs. Reduced milk availability further contributed to higher milk costs. However, on the economic front, the situation is stabilizing. Recently, inflation has been trending lower, while currency devaluation has been more in line with inflation. Milk prices also began to stabilize towards the end of Q3, and we expect milk production to increase in Q4. While market conditions remain challenging, we will continue to focus on what we do best and that is to run our assets efficiently, invest in our people and brands, and position the business for long term. In Australia, the focus over the last few years has been on the restructuring and optimization of our footprint. We are seeing the benefits of that work coming through. We also benefited from a better relationship between our milk cost and international market prices and higher milk intake. With global dairy markets improving, it was a good quarter for dairy ingredient volume and prices. In Europe, results increased sequentially for the fourth consecutive quarter. This reflects continued expansion in site consolidation efforts, delivery of strong retail cheese volume growth, and tight cost controls across the business. The recently announced proposal to move the Wensleydale packing operations out of Kirby-Malzard to Nuneaton is expected to further improve operational efficiencies and increase our ability to capture commercial opportunities. Cathedral City, second quarter momentum carried through in Q3, growing both in volume and share, fueled by innovation and in-market execution. Higher input costs will be a key issue in Q4 as we plan for fiscal 2026. Milk costs remain high and other costs, including labor, Vegetable oils and utilities are increasing. Cost optimization and efficiency will be of the utmost importance going forward in the context of new and growing cost pressures. Based on ongoing challenging market conditions, including persistent inflation, we reviewed our estimates of future cash flow for our UK division, which resulted in a goodwill impairment charge. Looking ahead at the fourth quarter, we will continue to keep a careful eye on costs, mix in efficiencies to support volume and savings, despite continued headwinds and anticipated market volatility. Regardless of the external environment, which includes potential tariffs, the foundation and the resilience of our business is strong. We have a diversified portfolio of compelling brands and growing categories, the right strategy in place, and winning commercial capabilities. We are taking near-term and long-term actions to position ourselves competitively for today and into the future. While we continue to navigate current challenges, we firmly believe in our path forward to deliver consistent growth. Our three main priorities will be to, first, finish what we started by extracting the full value of all investments and efforts deployed across our business, invest in our commercial strategy for accelerated returns, and growth from our great brands, products, and services we offer our customers and consumers. And lastly, reduce our input costs through operational efficiency, reviewing administrative practices and programs from day-to-day activities. This includes an all-in effort to minimize the dependence of passing these costs on to the consumer. Though the path ahead will likely come with quarter-to-quarter variability, we continue to see momentum in our business. In volatile markets, we will continue to manage our business and approach decision-making with urgency. We continue to prioritize resources towards our largest growth opportunities. Our strategy reflects the continued focus on our business fundamentals and on controlling the controllables. Our cash generation remains strong, and we will maintain a balanced and disciplined approach in our capital allocation with a focus on share repurchases in the near term. That concludes our formal remarks. I will now turn the call over to Julianne for questions.

Thank you. As a reminder, to ask a question, please press star, followed by the number one on your telephone keypad. To withdraw any questions, press star one again. Our first question comes from Irene Nattel from RBC Capital Markets. Please go ahead. Your line is open.

Thanks and good morning. Could you please talk a little bit about what is driving the record performance in Canada and the sustainability and, you know, what the key factors are similarly in the U.S.? And, you know, if we're – sorry, the Q3 run rate, you know, how much – what is the upside from here on a one, two, three-year outlook? and what are the key factors to delivering that. Thank you.

Thank you, Irene. Good morning. Just maybe starting with Canada, I'll say that much like the US, a good portion of the contribution to the profitability this quarter came from the realization of the benefits of various capital expenditures that have been ongoing over the last couple of years in Canada. But I would also say that our continued focus on customer relationships, support of our very strong brands in the marketplace, and our diversified portfolio across both retail and food service result in a very strong quarter. And it really comes from our ability to fill the demand that exists in the Canadian marketplace. We have very high fill rates. And that comes from basically the proficiency of our teams, the stability that we've had in our workforce, as well as our great capabilities with regards to our supply and demand planning, and our ability to bring that and service our customers with our delivery fleet that we have. So from a Canadian perspective, it was absolutely an outstanding quarter. And we do expect the business to continue to demonstrate strong results, but much of what we expected to see from capital expenditures have been delivered now. In the U.S., what we're seeing is fundamentally two things. One, recovery of some volumes, so we continue to perform well in a number of sectors. Our strongest of brands, such as Cheeseheads in particular, are also performing very well on the string cheese side, and our ability to service that market space has improved. We're also seeing just about the full benefits of the investments we've made in our mozzarella modernization plans that are flowing through at this moment. Some benefits from the work that we've done in consolidating our wrap operations in our Franklin site. And if I look forward, there's more to come from the Franklin operation. We are not where we need to be, but nonetheless encouraging our fundamentally the leading indicators, if you like, from that site in way of productivity, output, fill rate, still all trending in the right direction, but more to come from the completion fundamentally of our network optimization plan. So more in the tank absolutely from the U.S., and fundamentally more stability come in Canada.

That's really helpful. Thank you. And, you know, clearly the topic of the week, tariffs, trade. Of course, now we're hearing about, you know, agri-trade. What is your current read on, you know, the environment? Has there been a shift in your view or have you heard anything about any willingness to reopen the discussions around supply management and, you know, how you're sort of planning to operate in this environment of uncertainty? Okay.

Well, maybe I would say a couple things. One, just as a reminder, our two businesses, our Canadian and U.S. operations, are very autonomous and have very little links between the two on a day-to-day basis. So when I take a look at the potential tariff applications that are still lingering, from a direct perspective, there's not a lot of impact. And that is because of the limited amount of movement we have between Canada and the U.S. and vice versa, or even into Mexico for that matter. From an indirect perspective, of course there are some inputs to our business, whether those be packaging materials or chemicals or other things of that nature that could be impacted, but fundamentally the sum of those two are not material for our business. What I can say, though, in and around specifically supply management, I think we've heard now two ministers come out publicly and state that supply management is not a negotiating component and is not on the table at this point. And so we believe that the Canadian government understands the importance of supply management in the Canadian landscape, and we don't think it's going to be a negotiating element here as we move forward.

That's very helpful. Thank you. Our next question comes from Mark Petrie from CIBC. Please go ahead. Your line is open.

Thanks. Thanks. Good morning. I just want to follow up on a couple of things, maybe just with regards to the network optimization efforts in the U S and you're saying, you know, more to common Franklin, which I think you've said before, what's your latest thinking on when you would expect the full run rate of those benefits to be achieved?

So at this stage, as we've discussed over the last couple of quarters, the ramp-up plan has been slower than expected from Franklin. But however, the offset to that has been our ability to keep our fill rates high with the demand from our consumer space. And so although we've not been able to consolidate the last of sites really into Franklin, which is our Green Bay operation, we have been able nonetheless to maximize the fill rates as we continue to be in the situation that we're in, which is not consolidated into Franklin. The outlook at this point is that by the end of the calendar year, we should have finalized the relocation and the startup of the newest lines to consolidate the last site, which is Green Bay. So what we expect to see here is continued improvement, basically week over week, month over month, leading into the end of December of 2025, with complete closure being the last of the consolidation elements.

Okay. Helpful. Thank you. With regards to the commodity impact, can you just give us, in the U.S. specifically, can you just give us a sense of how that sort of shaped up in Q4, and what's your short-term outlook on market factors in Q4 or even Q1?

Through January, we've seen an improvement over what we've lived through in Q3. In Q3, we ended up with an average block your cheese milk spread in the negative 28 zone as we as we move forward here we expect q4 to look more like a minus 20 so an 8 cent improvement still a negative still certainly below historical averages but definitely an improvement to q3 it seems to be sustained we're starting to see also the whey component of the cost structure of milk come down relatively rapidly as well. So I think we've got strong beliefs that the Q4 number from a spread perspective will be favorable to Q3 leading into Q1. Some of this is supported by whether it's the cheese inventories and where they're at in the U.S. as well as the expected milk supply or the tightness in milk supply to correct myself as we move forward.

Okay and just the last one I guess sort of related to that obviously you highlighted the approval from the various boards on the change in the milk price formula and thanks for quantifying or helping to shape this sort of impact there. How confident are you that this is going to sort of fall to the bottom line or how do you expect that to be that change to be processed or handled by the industry?

Well, maybe sort of a short recall or a bit of a history session. You know, it's been 17 years since these make allowances or changes to the pricing formulas were changed. So fundamentally, this is going to help dairy processors bring some balance back to the cost of transformation on a go-forward basis. But it will also help the dairy industry continue to remain competitive in the food space, continue to bring innovation to the marketplace, allow us to fund that, continue to remain relevant at a time when consumers are looking for the highest value. So I'm very confident that from that perspective, These changes will help the dairy processors and brand owners and producers bring value back to the market space. But we're going to have to see a few quarters sort of shake out and understand what the rebalancing might look like following this decision.

Understood. Thanks for all the comments and all the best. Thank you.

Our next question comes from Michael Van Elst from TD Cowen. Please go ahead. Your line is open.

Thank you. Good morning. I wanted to switch to Europe for a bit. I know the ramp up or the return to normal profit levels is taking longer than expected, but can you talk about what did drive the sequential profit improvement this quarter and what do you see helping make further progress given your comments around continued margin recovery expected?

So when you compare, certainly over last year, we're lacking very high inventory, the cost of cheese at a high inventory. And so that's basically the drive from a year-over-year perspective. But if I look at the progress we are making in our UK operation, it really comes from, one, continued support of our market-leading brand, Cathedral City. Cathedral City continues to perform very well in the branded space. It's still the market leader. We continue to hold and or gain share depending on the quarter involved. So from that perspective, we're very pleased with its performance. The business is now also beginning to slowly reap the benefits of its capital expenditures as well as its network optimization. And if I look forward, despite a difficult environment for consumers. The inflationary pressures have been persistent, of course. We also expect some of inflationary pressures to actually rise in the UK right now. So when we think about all of those factors and we look forward, there are still opportunities for us to benefit from efficiency, from volume, and from also some of the choices that we are considering around the way space. So let's not forget that our UK business, much like our other operations around the world, have an ingredients side coming from our cheese, and we are looking at optimizing this platform as well. So if I take the sum of that, plus the benefits we believe we're going to have from the coming Wensleydale cutting operation integration, the UK still has the ability to grow from a year-over-year perspective here over the short and long term.

How about on a sequential basis? Does that have room to continue to grow given in the light of the rising milk costs that we're seeing or starting to see?

Yeah, Mike, the sequential improvement has to do with volume. and the efficiencies that were derived from the manufacturing sites.

Okay, so I'm just talking about going forward, though. As you see your milk costs start to rise again in the UK, how do you think you might adjust differently this time so we don't see your profitability in that division collapse?

Yeah, no, I hear exactly what you're asking, Mike. So on the milk front, you may have also heard that we unfortunately parted ways with some of our dairy farming partners recently, so we served them notice, therefore lowering our overall milk burden intake to better reflect that of the demand and the balance between our branded business and that of what we provide to the industrial space. So from that perspective, as that milk volume declines and we don't have that inventory burden and are not looking to sell into these lower margin categories, we will see the benefits of that flow through our business. From our former acquisition in Wensleydale, there is a lot of activity at this time and a lot of focus at improving our overall output and our fill rates. And we also know that we're going to see the improvements from a cost per kilo basis as we integrate that into Nanitin, which, much like Franklin, was our choice for a consolidated cut and wrap operation. So we absolutely feel that we are heading into a calendar year whereby there will be a very good balance between the milk intake and the demand in the market space, so we're not going to see ourselves in a position where we've got excess inventory to manage. We'll be focused on as much branded sales as possible, considering the consumer environment, and we'll nonetheless be focused on also improving and optimizing our whey ingredients business. Great, thank you.

Our next question comes from Chris Lee from Desjardins. Please go ahead. Your line is open.

Hi, good morning everyone. I just need to start a question on international. Recognizing obviously there's still a lot of moving parts, but just curious to see what's the Q3 EBITDA number of 51 million? Do you think that's sort of the bottom and would there be sort of sequential improvement going forward?

Well, I would tell you that the lion's share of the year-over-year decline is really attributed to Argentina for all the factors that we've already shared. And if I look forward and based on the commentary that we've provided around, one, Australia, Australia is in a very good place following the efforts and heavy lifting that they've done over the last couple of years in way of the network. There's a very good balance at this point between the milk supply and demand, including the pricing differential between that of milk costs and international selling prices. So from that perspective, I can see continued stability and growth on the Australian platform. In Argentina, we're seeing the economic situation stabilize, which is also bringing stability to the milk price, But I'll say another point to underscore another element is the availability of milk in Argentina is improving and improving rapidly. So in Q4, we're already seeing milk off-farm beginning to rise, and we expect that the 7% annual loss in milk volume that occurred in the Argentinian dairy industry, which being the largest intake in Argentina, would have been proportional to Saputo as well. We expect that the calendar year 2025 in Argentina will see about a 6% rise. So we'll probably recover just about all of the milk that we didn't have, which will then also provide us with the ability to recapture the volumes that were lost in 2024. So long-winded way of saying that in the international space, both Australia and Argentina will be in a good position to grow.

Okay, perfect. That's very helpful. Thanks, Carl. And then maybe moving on back to the U.S., as you know, the industry is going to see sort of a step up in terms of new cheese capacities over the next couple of years. And I'm just wondering, do you see this as a big risk to pricing or to your business? I recognize this is only a growth in increasing capacity. There's probably some net impact from other plant closures, so maybe the net basis is not going to be as I just wanted to get your thoughts on the new capacities that are coming and the impact on the industry and pricing.

Thank you for the question, Chris. I would say that if you did a simple mass balance, it'll look like there's some excess stainless steel there, but you're correct. There's going to be obsolete assets that will be removed from the system. We understand that. There's continued growth in international space and the domestic space, of course, so a lot of this capacity will continue to be available to feed and fill that demand beyond that of the U.S. borders. And I would also say that one of the aspects that will drive or shutter more quickly some facilities will be the lack of availability of milk. There isn't all the milk available in the system right now fundamentally to fill that potential demand. And I think that we're going to find a good balance between when a facility comes online, the availability of the milk for that sector, and where the demand is at that moment. So although there's always the potential for short-term demand, volatility. I do expect that all of this will balance itself off and continue to drive their industry forward.

Perfect. And maybe my last question before I pass it on is just on the NCIB increase. I was curious to see what has changed in your thinking between now and three months ago that caused you to increase the NCIB? Do you have a more confident outlook in your free cash flow business outlook?

um like just yeah going to see and then maybe secondly is do you fully intend to to utilize the ncib over the next 12 months or so well maybe i'll start by saying yes we do have confidence in our steady cash flow and uh certainly we've demonstrated that through the q3 uh performance um and it isn't just from of course what we were able to deliver here in this quarter but it's The understanding that the investments we put into our business, the heavy capital program that went in the last couple of years are now delivering and we expect to fully benefit from that. Accordingly, we also know that we won't be spending and allocating our capital towards those capital expenditures at the same rate. And as we take a look at the various options that we have for best shareholder return, At this moment, we're very confident that investing in our undervalued stock is the best thing for our business. Great.

Thanks, and all the best to you. Thank you.

Our next question comes from Vishal Sridhar from National Bank. Please go ahead. Your line is open.

Thanks for taking my question. Regarding the $2.125 billion target, and now that's been pulled away. Wondering how investors should think about the long-term earnings power or EBITDA generation power of this company. Does management intend to update us on a new target looking forward, or is this more of a we'll take it if it comes, kind of given the increased volatility that has caused some of the pressure on Scudo's results?

I think what I would like to share on that is, and I won't summarize all of the reasons why we withdrew it. I think it's clear. But what I'd rather share is that, first and foremost, we still have lots of fuel in the tank. So a bit like the response to the prior question, we've put in over $2 billion worth of capital expenditures across the globe in our businesses. with a predominant share here in North America, where we also feel that there is still lots of upside. So from that perspective, we do believe that we will benefit fully from those capital expenditure programs. Our commercial initiatives, which is a priority for us, will also continue to deliver year-over-year improvements in our business. the efforts that we have and will continue to put in reshaping and restructuring our overall cost and resource structures will also help benefit the business. This will yield year-over-year growth and organic growth as well from the strong brands that we have. And we also are very focused on generating and confident in generating the steady cash flows. So that's what I think we can expect from Saputo on a go-forward basis. With that said, that kind of leaves us in a place where today and tomorrow, with a clean balance sheet, rejuvenated assets and very flexible from that perspective as well, feel a lot better today than where we were four or five years ago with the flexibility of the assets being able to cross over from retail to food service and vice versa. So whatever the current market conditions or uncertainty that exists in the markets in the near term bring to us, we'll be in a great position to weather those storms. So very confident in our ability to navigate whatever comes our way and to focus on organic growth and year-over-year improvement.

Okay. And with respect, as you look at your global facilities, obviously, you know, the... the write-down in the UK, Argentina results, maybe some macroeconomic volatility pressuring over there. But as you look at your global facilities, do you feel all those regions that you operate in are core at this junction?

What I would say is that each of those regions are, first and foremost, very autonomous, number one. So they have a strong leadership team capable of navigating the various market conditions and opportunities and really capturing the opportunities that are available to them. They all have absolutely a purpose in our portfolio, whether that is to help service our international customers, specifically Argentina and Australia. So from that standpoint and the fact that we have completed the heavy capital investments in these sites. So now we're at a stage whereby we will be able to benefit from those investments and those efforts. And quite frankly, because of their autonomy, it is not a distraction for myself and or the leadership team. And yes, we are going to focus to a greater extent on our North American operations where the greatest growth opportunities lie. So those sectors of our business absolutely are valuable to us, and we've invested where we needed to invest, and I expect those areas to continue to deliver to our growth.

Okay, and maybe just going back on supply management in Canada, in the past, Saputo used to say, I believe he said, you know, he was... And you can correct me if I mischaracterize, but he was indifferent to supply management opening up or not because of the options to trade commodities for themselves. Is that still the opinion, or is there more nuance to it now? No, I understand the comment that you said about the ministers, but just in the event of a new government change.

Well, what I would say is Sepulveda has always adapted to the milksheds and the milk environments in which we operate in. So... From that perspective, whatever the future holds, we'll be ready to adapt our assets accordingly in order to service the very, very vast geography in question. But I would tell you that when we take a look at our platforms, of course, we have assets on both sides of the border. Again, with a great differentiation amongst the tools, So each of those components will be valuable should that scenario ever come. But to answer the question more specifically, though, around our position, supply management works for Canada. So, you know, on the one hand, we're not here to critique whether or not it's beneficial to Saputo. At the end of the day, it works for Canadians and it works for Canada, and we work well within that system. And should the decision be made to move away from that, we'll also adapt our platform accordingly.

Thank you.

For any additional questions, please press star followed by one on your telephone keypad. Our next question comes from Tammy Chen from BMO Capital Markets. Please go ahead. Your line is open.

Hi, good morning. Thanks for choosing me in here. I've just got two quick ones, just follow-ups on the UK and then on Canada. First on the UK. So if we think about, I think when you first acquired the business, I recall the segment was doing from an EBITDA margin perspective, I believe somewhere in the high teens percentage. So you're obviously lower than that now, but you've been improving. This revised outlook where the recovery is lower than previously anticipated. So should we assume that the prior high teens percentage margin is no longer feasible so that really once you've achieved all of the benefits you're still expecting to get, you'll still be at a level that, is it something like mid-percentage, sorry, mid-teens percentage? Or just how do we think about the recovery potential now?

Yeah, thank you, Tana, for the question. It's good observation. And I would say that unless the environment in the UK were to change and we'd end up in a very different place when it comes to inflationary pressures, interest rates, and everything that's come since the acquisition back in 2018, I would say that the margin structure that the business enjoyed then would be very difficult to get to under those terms and conditions. But our path forward for the UK absolutely comes from improved margins by way of operational efficiency, continued investment in the Cathedral City brand, which continues to be a market leader, and looking at different ways to optimize and extract value from our ingredients business. So I feel very good about the way forward for the UK. But yes, where we sit today from a margin structure versus that of what it was at time of acquisition, I think it's a fair statement to say that we'll be somewhere in the middle.

Okay, got it. And for my last question is, I wanted to ask, in the past when Canada has conceded or allowed more imports of finished dairy products via additional quotas issued, as I recall, I think this happened each time we signed a major international trade agreement over the past several years. did that ultimately have any impact to the competitive landscape in Canada? And I ask in case this is the outcome that unfolds again from this current U.S. administration and their comments regarding our dairy industry. Thank you.

Well, I would tell you that whether it's the USMCA or COSMA or CETA or the Trans-Pacific Partnership, any of those agreements that have been seen an increase in import quotas, has fundamentally been beneficial also for consumers. And I mean specifically that with some of those quotas being part of our repertoire as well, we've been able to diversify the offerings in the market space. So as dairy processors, we know exactly what's being made in Canada and what isn't. And what we do bring through these quotas are products from different regions that allow the Canadian consumer to expand his horizons or their horizons on the products that we bring to market. So from that standpoint, I do believe that it's favorable for the market space, for the development of dairy. And whatever changes come our way, we do expect that we'd be able to use that to continue making inroads for dairy with our consumers and customers.

Got it. Thank you.

We have no further questions. I'd like to turn the call back over to Nick Estrella for any closing remarks.

Thank you, Julianne. Please note that we will release our fourth quarter and full year fiscal 2025 results on June 6, 2025. We thank you for taking part in the call and webcast, and have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.